In the next month, we should receive more color on share repurchases. The summer could be a little bit bumpy with demand conditions uneven, but it will be worth the one- to three-year ride.
Declining TiO2 prices
El du Pont de Nemours has been the face of the US chemical industry. The company’s two major revenue-making segments are: Agriculture and Performance Chemicals.
In the past two years, positive or negative news out of the Agriculture or TiO2 markets have been the largest driver of du Pont’s stock (For those who don’t know, TiO2 or titanium dioxide is a vital raw material in paint manufacturing and is used because of its brightness. Sale of TiO2 forms a major portion of revenue of Performance Chemical segment). The Street doesn’t see this trend changing until du Pont’s “other segments” grow in relative size and also start to deliver the growth and profitability that du Pont believes it can achieve.
In Agriculture, business conditions continue to remain robust and another record year of earnings looks probable after the company’s second quarter results print. Market share in North America versus Monsanto Company (NYSE:MON) will be the focus later this year but with delayed plantings, it is hard to get a current read.
In TiO2, the commodity continues to remain a battleground on whether prices will continue to fall or will stabilize. The Street believes that prices of TiO2 will continue to move down over the next 2 years to roughly the level they averaged from 2000 to 2007.
What makes DuPont’s stock a bit more interesting at the moment is the M&A / Divestiture angle. Analysts walked away from the investor day thinking that meaningful acquisitions are a distinct possibility over the next 18 months. However, many believe that separating TiO2 from Dupont’s portfolio is not likely to happen in the near term.
Final Word
Investors were left with three themes after the ROC conference: Housing recovery, Shale gas boom (declining raw material prices) and declining TiO2 prices. Sherwin-Williams Company (NYSE:SHW) and LyondellBasel Industries NV (NYSE:LYB) seem to be good bets on the first two themes. The third theme (i.e. declining TiO2 prices) compels us to remain on the sidelines with du Pont until the TiO2 market settles out.
The article 3 Investing Themes in the Chemical Space to Profit From originally appeared on Fool.com.
Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends Sherwin-Williams. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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